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3 Reasons Why Bed Bath & Beyond Is Leading the Way in Home Goods Retail

An analysis of Bed Bath & Beyond's top three strengths.

For over 40 years, Bed Bath & Beyond (NASDAQ:BBBY)has withstood the test of time, standing strong against both economic downturns and fierce competition from its much larger peers. Despite these battles and their effects, Bed Bath & Beyond has successfully held itself together by relying on a broader and more diverse product assortment, competitive pricing techniques, and the company's culture. These efforts and improvements have provided the company with a strong market position, giving it greater momentum to press on in the retail industry. Investors in the company, or those considering making it part of their portfolios, should be aware of the company's biggest strengths.

Broad, diversified product selection Since 2002, Bed Bath & Beyond has acquired five subsidiaries under its umbrella: Harmon Stores, Christmas Tree Shops, buybuy BABY, Cost Plus, and Linen Holdings, LLC. All of these subsidiaries have added further value and distinction to the company's large array of home goods products. Like Wal-Mart(NYSE:WMT) and Target (NYSE:TGT), Bed Bath & Beyond provides products for the bedroom, bath, and kitchen along with home furnishings and baby accessories. What sets Bed Bath & Beyond apart from its peers is the sheer volume of options available to customers. These include a larger selection of brands, colors, styles, and textures to match all tastes.

If you've ever been into a Bed Bath & Beyond store, you know how packed full it is with different categories of products. You also understand how hard it can be to resist the temptation to purchase more than what you originally planned on buying. The way its products are presented to customers creates an immediate fascination and "wow" factor, stimulating the impulse reaction to purchase additional items. During the shopping experience, customers are surrounded by product displays and tables and shelving cases full of merchandise that reach as high as the ceiling in some areas of the store. It's no wonder that customers end up buying more than expected. Add in a Bed Bath & Beyond coupon and the price can't be beat. It would not be a stretch to say that Bed Bath & Beyond outmatches it competition by simply having more options for shoppers.

Competitive pricing strategy Some would argue that Bed Bath & Beyond offers the lowest prices on home accessories, while others would argue that Amazon.com (NASDAQ:AMZN) or Wal-Mart have the lowest prices out there. For years now, customers have been using Bed Bath & Beyond's stores as a "showroom" to test out and explore various products before searching for the same product on Amazon.com to compare prices. This is also the case for Best Buy (NYSE:BBY) stores where customers stop in to to fool around with the latest tablets, computers, electronics, and appliances before checking Amazon.com.

Analyst Brian Nagel of Oppenheimer compared products sold at both Bed Bath & Beyond and Amazon.com and found the results to be stunning. Amazon's prices came out to be 7% cheaper excluding sales tax and shipping charges. If customers shopping at Bed Bath & Beyond use the store's 20% off coupon, the item will actually cost around 15% less than it would on Amazon. So without a 20% off coupon, your best bet is to purchase the item on Amazon. Once sales tax and shipping charges are factored in, however, the item's price may break even with the price at Bed Bath & Beyond. Like most retailers, Bed Bath & Beyond monitors market prices on all of its items to make small adjustments and uses its 20% coupons to its advantage.

Always striving to be betterBed Bath & Beyond highly values its company culture and product assortment throughout all of its stores. The company is continually making changes to the products it offers in order to keep up with the newest design trends, market conditions, and consumer interests. At the moment, Bed Bath & Beyond is working on improving its e-commerce business by devoting much of its resources in promoting its technology services to create an exciting shopping experience for its customers. Its investments in social media outlets and its e-commerce business will also allow the company to better compete with Amazon.com for sales.

Bed Bath & Beyond is also expanding its product line to include a food and beverage merchandise section in many of its stores to better serve its customers' cravings.

Through its decentralized management approach, Bed Bath & Beyond is able to provide excellent customer service through hiring locals to manage its stores in one of its many locations. This allows associates to deliver the best expertise, assistance, and trendy products as these locals know what customers in that area want. Associates in all of its 1,478 stores also take part in monthly training classes to educate employees on the newest products and any details that come with it, so that customers will receive the information they need to make an informed purchase every time.

Constantly striving to provide a better customer experience and to improve one's product line is essential in the retail arena where another retailer can easily stock their shelves with the same products. This is why constantly striving to improve, and not remaining static and resting on ones laurels, is so important. This is an attribute that Bed Bath & Beyond certainly has, and the results show it. Just take a look at the company's return on equity and profit margins for the past three years:

Company Name

FY 2011 Return on Equity

FY 2011 Net Profit Margin

FY 2012 Return on Equity

FY 2012 Net Profit Margin

Est. FY 2013 Return on Equity

Est. FY 2013 Net Profit Margin

Bed Bath & Beyond

25.2%

10.4%

25.4%

9.5%

Approx. 25.5%

Approx. 9.3%

Target

18.5%

4.2%

17.5%

4%

Approx. 15.5%

Approx. 3.4%

Wal-Mart

21.8%

3.5%

22.3%

3.6%

Approx. 20.5%

Approx. 3.6%

Not only is Bed Bath & Beyond competing in the big leagues in terms of product pricing, but it is giving two of the largest retailers in North America a run for their money in terms of return on shareholders' equity and in net profit margin.

As you can see from the chart above, Bed Bath & Beyond received a higher return on equity as well as net profit margins for the 2011 and 2012 fiscal years. The company is also expected to beat Wal-Mart and Target again for the 2013 fiscal year in terms of having a better return on equity and higher net profit margins. Foolish investors don't have to look far with Bed Bath & Beyond to see that its organization is clearly doing something right.

Foolish takeaway Investors looking to add Bed Bath & Beyond would be wise to explore additional metrics before making a decision. The company is taking the right steps to stay on pace with changing market trends while being proactive to ensure its product assortment exceeds beyond customer expectations. Through its pricing strategy and promotions, management culture, and the latest technology enhancements, Bed Bath & Beyond has proven it is a powerhouse. It is also willing to do whatever is required to be the "go to" retailer for home goods. Investors should keep a close eye on Bed Bath & Beyond as its company sales continue to flourish and its geographic expansion presses on in North America.